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Signaling in dynamic markets with adverse selection

Author

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  • Barsanetti, Bruno
  • Camargo, Braz
Abstract
We study trade in dynamic decentralized markets with adverse selection. In contrast to the literature on the topic so far, we assume that the informed sellers make the offers so that signaling through prices is possible. We establish basic properties of equilibria, discuss the standard two-type case in detail, and then analyze the general finite-type case. We prove that market efficiency, measured by the maximum gains from trade in equilibrium, is invariant to trading frictions. Our analysis shows that screening and signaling lead to markedly different trading outcomes.

Suggested Citation

  • Barsanetti, Bruno & Camargo, Braz, 2022. "Signaling in dynamic markets with adverse selection," Journal of Economic Theory, Elsevier, vol. 206(C).
    • Handle: RePEc:eee:jetheo:v:206:y:2022:i:c:s002205312200148x
    DOI: 10.1016/j.jet.2022.105558
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    References listed on IDEAS

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    Cited by:

    1. James Albrecht & Xiaoming Cai & Pieter Gautier & Susan Vroman, 2024. "Competitive search with private information: Can price signal quality?," Tinbergen Institute Discussion Papers 24-054/VI, Tinbergen Institute.

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    More about this item

    Keywords

    Adverse selection; Signaling; Market efficiency; Trading frictions;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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